MA Question 1

[dougo]

The Massachusetts State Income Tax Repeal Initiative, aka Question 1, will end the MA state income tax if passed (in 2010, after becoming 2.65% in 2009; it's currently 5.3%). At first glance, this seems like an obvious liberal/conservative split: conservatives want to cut taxes, and liberals don't. But I saw an ad for voting no that made me consider voting yes: it pointed out that if passed, it would cause property taxes to rise (as opposed to increasing the sales tax, or cutting spending, which is what the Libertarians who sponsored this question really want). Is that such a bad thing? Which is better, an income tax or a property tax? I feel like a property tax is more progressive, because homeowners are probably more wealthy than those whose income is greater than their exemption + deduction. Also, I think it would be better to reward labor over ownership. In the short term, higher property taxes will hurt people who are already suffering from the mortgage crisis (and also further depress the housing market), but I don't think that's a strong argument against it. In the longer term, it would hurt retirees whose homes are fully paid off and who don't earn income, and I'm not sure what I think about that. What are some other arguments for and against?

Comments

[wrog]

wealth of homeowners is really dependent on how leveraged they are. If you owe $450,000 on a $500,000 house, you're not actually very wealthy at all.

property tax is also a problem in that you owe the tax regardless of whether the land is producing income or not. I think if you really want it to be progressive, you pretty much have to have differential rates for residential and commercial property. And you'll find a lot of these same libertarians are adamantly opposed to that.

One of the big problems with Prop 13 in California is that it explicitly forbids such a distinction and so while it was passed on the basis of reducing poor-retired-granny's taxes on her $n00K house that she bought in 1950, it was actually a monster windfall for Sears, JC Penney et al for their shopping center properties that they owned since the 1920s.

The main advantage of property tax is that it's easy to administer. You just keep track of who owns all of the land and send out bills. You don't even have to care a whole lot exactly how the bills are getting paid. It's a dream in terms of getting a predictable income stream; every square foot of dirt generates so many $. And it's pretty much impossible to evade.

The downside is that it's quite inflexible -- whatever adjustments you make have to be based on characteristics of the land, not the people who happen to be living there, their overall wealth or lack thereof -- or if you do try to take that into account, then you've got something that isn't really a property tax anymore, but more of a half-assed income tax differentially applied only to people who own real-estate.

[mshonle.livejournal.com]

Economically, property taxes are (one of) the most efficient forms of taxation.

However, I would not claim that the property tax is more progressive. For starters, an increase in property taxes would affect renters too. And it's the same reason you wouldn't call a flat tax progressive: Higher earners pay more in absolute terms under a flat tax, but they still pay the same rate.

As for old people, in California there is a cap on property taxes for people who have lived in the same house for years: No old people get thrown out that way, but it creates strange incentives for people to stay in one place when they would rather move. (When you move, you then pay the new property taxes at probably a much higher rate.)

The libertarians in MA have tried to pass things like this before. Even if it does "pass," the legislature can change it. (Unless this is some change to the commonwealth's constitution?)

One final point: There are "liberal" ways to introduce consumption taxes, and "conservative" ways too. It must be seen in a greater context before the label could be applied. And I would argue that liberals *do* want to cut taxes, but only for the people who actually could use it. Read Falling Behind by Robert H. Frank for a top economist's suggestion.

[juliansinger.livejournal.com]

My primary problem with how the bill is worded is that it goes into 2.9% territory this fiscal year, as in, 3 months from now. That's just way too soon for that kind of implementation, and it's going to cause a pretty dramatic shock if it passes.


I'd be a fan of the property tax aspect of it if it were implemented simultaneously or something along those lines, but... it's not. They're just reducing then cancelling and providing no good alternatives.

[jdarnold.livejournal.com]

What kind of house you own doesn't necessarily reflect how much you earn, which is why the income tax is the right way to tax people. And not everyone owns a house, so they don't pay the tax directly.

My biggest problem with Question 1 is that it is a perfect example of why I don't believe in legislation by ballot questions. Like this one, they boil down complex questions into a simple yes or no, with no consideration or explanation of any side effects. While in general most people would be in favor of paying less, most people also don't want less service. So this question takes out one entire side of the problem, with no clear repercussions.

[temvald.livejournal.com]

I feel like a property tax is more progressive, because homeowners are probably more wealthy than those whose income is greater than their exemption + deduction.

I'd disagree here. As mshonle points out, property taxes hit both homeowners and renters (as the property tax would just get passed straight through), which means that it hits everyone but the homeless.

Second, though, if you look at property taxes as a form of wealth tax, then it's going to hit middle class families a lot harder than affluent families. A middle class family is likely to have a larger percentage of its wealth tied up in its house than a wealthy family. It's not that uncommon to have a family that owns, say, a $250,000 house and maybe $50,000 in 401k, plus a couple of $5,000 cars. So their total assets would be like $310,000, of which $250,000 is in their house--so about 80% of their net worth. Meanwhile, I seriously doubt that you're going to find many people who own $5 million houses whose net worth is only $6.2 million (or even have ~80% of their assets tied up in real estate, if you want to look at it that way).

And that's just looking at straight assets. If you calculate in mortgage debt, then the numbers become even worse.

So property taxes, while good in that they discourage the unproductive use of a limited resource, are not particularly progressive.

[rhysara.livejournal.com]

Either way the immediate ramification of it passing is huge financial loses to the towns and the places you will see it will be police, fire and education. Indeed, if it passes, I can pretty much count on being unemployed at the end of the year.

[inthatoneway.livejournal.com]

This is another example of why I really hate ballot initiatives. There's no real debate, no ability to compromise, no qualifications for who gets to decide. In the end the flashiest ad campaign is as like as not going to win. This is a very important issue, and should be decided by those who have at least a basic understanding of the issues involved. To be blunt, 90% of the voting public don't have sufficient command of the facts to make an intelligent decision here. You wouldn't poll your neighbors to decide if you should get that triple bypass, so why do we let them decide complicated legal issues? We vote for politicians to do a job. Let them do it, and if you don't like how they do it vote them out.

[amphibolous.livejournal.com]

On the ad -- I've seen it and heard its counterparts at least ten times daily (to be fair, I also hear Carla Howell, the sponsor of the Question interviewed about six times daily). Here it is in its most egregious form:

http://www.youtube.com/watch?v=kmzhlMhIV6w

It simply boils down to "Voting YES on 1 will raise your taxes." It's the worst kind of doublespeak, and it permeates the entire Vote No campaign. If nothing else, Yes on 1 has done a far better job of advertising than the No side, despite a siginificant disparity in funds. As for dealing with direct facts, www.votenoquestion1.com, the page of the advertisers, can't even be bothered to put a copy of the referendum on their site.

[dkuznick.livejournal.com]

It's pretty silly to think the only effect will be an increase in property taxes. It will DESTROY the state's economy, which is already screwed.